Another mixed trading day in Asia; QBE Insurance warns of profit downgrade

<p>We saw another mixed trading day in Asia today, with Hong Kong shares registering some gains while those in Tokyo losing some ground. The latest […]</p>

We saw another mixed trading day in Asia today, with Hong Kong shares registering some gains while those in Tokyo losing some ground.

The latest consumer price data from China showed a 4.1 per cent increase, which is in line with market expectations.

In Australia, the market gave up earlier gains after QBE, a major insurance company, came out with a profit downgrade announcement.

It didn’t take long for the confession season to claim its biggest loser so far. The period between reporting season next month and the close of accounts in December 31st means companies that know their earnings are likely to fall more than market expectations must update as part of their continuous disclosure requirements.

Once the market darling in global insurance, QBE has today shocked markets by saying it expects 2011 earnings to fall by 40-50% on the prior year. The market was expecting a 7% rise.

It has been a very heavily shorted stock and the bears have got this one perfectly right. The damage is playing on the market as we write, with the stock last down around 23%.

Insurance companies are in the business of pricing risk and while QBE had previously boasted a strong decade performance, the number of catastrophes in such a short period of time has finally caught up to hurt the group’s bottom line.

Margins have been downgraded and many will now question the tone of management who only a few months ago was sounding very optimistic.

Overhanging this downgrade is a separate issue being investigated by New York authorities. There won’t be too many brave investors stepping in to catch this falling knife.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.